Question 1

When aggregate planned expenditure _{--------------------} real GDP, there are unplanned _{--------------------} in inventories, and firms _{--------------------} production, therefore decreasing real GDP. A)exceeds; increases; increase B)is less than; increases; decrease C)is less than; increases; increase D)exceeds; decreases; decrease E)is less than; decreases; decrease

Accepted Answer

When aggregate planned expenditure is less than real GDP, there are unplanned increases in inventories because goods are not being sold as expected. As a result, firms decrease production to adjust to the lower demand, leading to a decrease in real GDP.

Question 2

When aggregate planned expenditure exceeds real GDP, there are unplanned _{--------------------} in inventories, and firms _{--------------------} production, so that real GDP _{--------------------}. A)decreases; decrease; increases B)increases; increase; increases C)decreases; increase; increases D)increases; decrease; decreases E)decreases; decrease; decreases

Accepted Answer

When aggregate planned expenditure exceeds real GDP, inventories decrease because goods are being sold faster than they are produced. Firms respond by increasing production, which leads to an increase in real GDP.

Question 3

When aggregate planned expenditure is less than GDP,
A)the economy definitely is at its equilibrium expenditure and firms do not change production.
B)firms increase production until the economy reaches equilibrium expenditure.
C)the economy might be at its equilibrium expenditure and if it is, firms do not change their production.
D)the economy definitely is at its equilibrium expenditure but even so, firms decrease production.
E)firms decrease production until the economy reaches equilibrium expenditure.

Accepted Answer

When aggregate planned expenditure is less than GDP, it indicates that not all goods and services produced are being purchased, leading to an accumulation of unsold inventory. As a result, firms will decrease production to align with the lower level of demand until equilibrium is reached.

Question 4

According to the aggregate expenditure model, when autonomous expenditure increases, equilibrium expenditure
A)increases by a smaller amount.
B)does not change because autonomous expenditures has no effect on equilibrium expenditure.
C)increases by a larger amount.
D)increases by an equal amount.
E)does not change because only induced expenditures increase equilibrium expenditure.

Accepted Answer

In the aggregate expenditure model, an increase in autonomous expenditure leads to a multiplied increase in equilibrium expenditure due to the multiplier effect.

Question 5

When real GDP exceeds aggregate planned expenditure
A)an unplanned decrease in inventories occurs.
B)real GDP increases.
C)firms increase production.
D)an unplanned increase in inventories occurs.
E)real GDP remains at its equilibrium.

Accepted Answer

When real GDP exceeds aggregate planned expenditure, firms produce more than what is being purchased, leading to an unplanned increase in inventories.

Question 6

When disposable income increases, consumption expenditure
A)also increases, but by less.
B)also increases and by more.
C)decreases by the same amount.
D)also increases and by an equal amount.
E)does not change.

Accepted Answer

When disposable income increases, consumption expenditure also increases, but typically by less than the increase in income due to the marginal propensity to consume being less than one.

Question 7

In the figure above, if real GDP is $6 trillion, aggregate planned expenditure is
A)less than $6 trillion and unplanned inventory changes are positive.
B)equal to $6 trillion and unplanned inventory changes are positive.
C)equal to $6 trillion and there are no unplanned inventory changes.
D)more than $6 trillion and unplanned inventory changes are negative.
E)equal to $6 trillion and unplanned inventory changes are negative.

Accepted Answer

The answer of 
In the figure above, if real GDP...

Question 8

The MPC is 0.90 and there are no income taxes or imports. If government expenditures on goods and services increases by $2.0 billion, after the multiplier effect works out, aggregate expenditure increases by
A)$20 billion.
B)$1.8 billion.
C)$2.22 billion.
D)$2.0 billion.
E)$10 billion.

Accepted Answer

The answer of The MPC is 0.90 and there are...

Question 9

An increase in the marginal tax rate
A)can either increase or decrease the expenditure multiplier.
B)has no effect on the expenditure multiplier.
C)decreases the expenditure multiplier and can make it negative.
D)increases the expenditure multiplier.
E)decreases the expenditure multiplier but cannot make it negative.

Accepted Answer

An increase in the marginal tax rate reduces disposable income, which decreases consumption and thus reduces the expenditure multiplier. However, the expenditure multiplier cannot be negative as it represents the effect of a change in autonomous spending on total output.

Question 10

As a household's disposable income increases, its autonomous expenditures _ and its induced expenditures .
A)do not change; increase by a smaller amount than the increase in income
B)increase; increase by a smaller amount than the increase in income
C)do not change; increase by an amount equal to the increase in income
D)increase; do not change
E)decrease; do not change

Accepted Answer

Autonomous expenditures do not change with income as they are independent of it, while induced expenditures increase with income but by a smaller proportion.

Question 11

The expenditure multiplier is larger than one because
A)an increase in autonomous expenditure induces further decreases in aggregate expenditure.
B)additional expenditure induces lower incomes.
C)an increase in autonomous expenditure induces further increases in aggregate expenditure.
D)the price level rises, thereby reinforcing the initial effect.
E)an increase in autonomous expenditure brings about a reduction in the real interest rate.

Accepted Answer

An increase in autonomous expenditure leads to a chain reaction of increased consumption and investment, which further increases aggregate expenditure, making the multiplier larger than one.

Question 12

When the AE curve shifts upward because the price level falls, the corresponding effect on the aggregate demand curve is
A)nothing because aggregate demand does respond to changes in the price level.
B)a movement downward along the aggregate demand curve.
C)a movement upward along the aggregate demand curve.
D)a shift rightward of the aggregate demand curve.
E)a shift leftward of the aggregate demand curve.

Accepted Answer

When the price level falls, it leads to an increase in the quantity of aggregate demand, resulting in a movement downward along the aggregate demand curve, not a shift of the curve itself.

Question 13

The smaller the amount saved out of a change in disposable income, the
A)larger the MPC.
B)smaller is autonomous consumption.
C)more net taxes affect consumption.
D)more horizontal the consumption function.
E)smaller the MPC.

Accepted Answer

The smaller the amount saved out of a change in disposable income, the larger the MPC. This is because the MPC is the ratio of the change in consumption to the change in disposable income. If the amount saved is smaller, then the change in consumption will be larger, and therefore the MPC will be larger.

Question 14

If autonomous imports increase, then the aggregate expenditure curve shifts _{--------------------} and equilibrium real GDP _{--------------------} . A)downward; decreases B)downward; does not change C)downward; increases D)upward; decreases E)upward; increases

Accepted Answer

The answer of If autonomous imports increase, then the aggregate...

Question 15

The size of the expenditure multiplier is influenced by
I. the marginal propensity to consume.
Ii. autonomous spending. iii. the marginal tax rate.
A)i only
B)i and iii
C)ii only
D)ii and iii
E)iii only

Accepted Answer

The expenditure multiplier is influenced by the marginal propensity to consume (MPC) and the marginal tax rate. A higher MPC increases the multiplier, while a higher marginal tax rate decreases it. Autonomous spending does not directly affect the size of the multiplier.

Question 16

The figure above shows a nation's consumption function. If disposable income is $2 trillion, then the MPC is _{--------------------} and saving is _{--------------------}. A)positive; positive B)negative; positive C)positive; negative D)negative; negative E)positive; zero

Accepted Answer

The answer of 
The figure above shows a nation's consumption...

Question 17

At which of the following points is the unplanned inventory change the largest positive amount?
A)point F
B)point E
C)point C
D)point B
E)point D

Accepted Answer

The answer of

At which of the following points is...

Question 18

A shift in the aggregate planned expenditure curve as a result of an increase in the price level results in
A)a downward movement along the aggregate demand curve.
B)a rightward shift in the aggregate demand curve.
C)no movement along the aggregate demand curve and no shift in the aggregate demand curve.
D)an upward movement along the aggregate demand curve.
E)a leftward shift in the aggregate demand curve.

Accepted Answer

The answer of A shift in the aggregate planned expenditure...

Question 19

The AE curve illustrates the relationship between
A)the interest rate and aggregate planned expenditure.
B)real GDP and actual expenditure.
C)real GDP and the interest rate.
D)the quantity of real GDP demanded and the price level.
E)aggregate planned expenditure and real GDP.

Accepted Answer

The AE curve, or Aggregate Expenditure curve, shows the relationship between aggregate planned expenditure and real GDP. It represents how total spending in an economy (planned expenditure) varies with the level of real GDP.

Question 20

When the real interest rate falls, there is
A)a decrease in the slope of the consumption function.
B)a movement upward along the consumption function.
C)an increase in the slope of the consumption function.
D)an upward shift of the consumption function.
E)a downward shift of the consumption function.

Accepted Answer

When the real interest rate falls, borrowing becomes cheaper, which can lead to an increase in consumption at each level of income, causing an upward shift in the consumption function.

Quiz 14: Aggregate Expenditure Multiplier

When aggregate planned expenditure -------------------- real GDP, there are unplanned -------------------- in inventories, and firms -------------------- production, therefore decreasing real GDP.

When aggregate planned expenditure exceeds real GDP, there are unplanned -------------------- in inventories, and firms -------------------- production, so that real GDP --------------------.

When aggregate planned expenditure is less than GDP,

According to the aggregate expenditure model, when autonomous expenditure increases, equilibrium expenditure

When real GDP exceeds aggregate planned expenditure

When disposable income increases, consumption expenditure

In the figure above, if real GDP is $6 trillion, aggregate planned expenditure is

The MPC is 0.90 and there are no income taxes or imports. If government expenditures on goods and services increases by $2.0 billion, after the multiplier effect works out, aggregate expenditure increases by

An increase in the marginal tax rate

As a household's disposable income increases, its autonomous expenditures _ and its induced expenditures .

The expenditure multiplier is larger than one because

When the AE curve shifts upward because the price level falls, the corresponding effect on the aggregate demand curve is

The smaller the amount saved out of a change in disposable income, the

If autonomous imports increase, then the aggregate expenditure curve shifts -------------------- and equilibrium real GDP -------------------- .

The size of the expenditure multiplier is influenced by I. the marginal propensity to consume. Ii. autonomous spending. iii. the marginal tax rate.

The figure above shows a nation's consumption function. If disposable income is $2 trillion, then the MPC is -------------------- and saving is --------------------.

At which of the following points is the unplanned inventory change the largest positive amount?

A shift in the aggregate planned expenditure curve as a result of an increase in the price level results in

The AE curve illustrates the relationship between

When the real interest rate falls, there is

When aggregate planned expenditure _{--------------------} real GDP, there are unplanned _{--------------------} in inventories, and firms _{--------------------} production, therefore decreasing real GDP.

When aggregate planned expenditure exceeds real GDP, there are unplanned _{--------------------} in inventories, and firms _{--------------------} production, so that real GDP _{--------------------}.

If autonomous imports increase, then the aggregate expenditure curve shifts _{--------------------} and equilibrium real GDP _{--------------------} .

The figure above shows a nation's consumption function. If disposable income is $2 trillion, then the MPC is _{--------------------} and saving is _{--------------------}.